6 ways to make your FCA application go wrong

Posted on: 13 November 2018

Written by: Ben Mason

Navigating your way through an application to be authorised by the Financial Conduct Authority can be hazardous. It can seem complicated, especially if you’re a crypto asset entrepreneur or technologist who’s not that familiar with the FCA’s processes.

If you prepare well and think carefully about it you can mitigate most of the hazards easily enough.

But here are some of the things that can make your application go wrong.

1. You don’t really know your business model

It sounds obvious, but the starting point is to really understand your business model. It’s surprising how often people seeking authorisation don’t actually have a clear idea of the products and services they want to offer and which customers they want to offer them to. It’s a prerequisite. And the business model needs to pass the ‘sniff test’: does it make intuitive sense at a high level to someone not expert in crypto as an asset class, or a layman? If it does, it might make sense to the regulator too.

2. You don’t have the right people on the board

You need to have a board of directors that’s both sufficiently broad – and contains the right skills – to enable it to challenge and direct the business in an effective and accountable way. If you’re setting up a crypto business but your board directors only have expertise in say, construction and healthcare services, and they don’t know anything about regulation, it’s not going to fly with the FCA. They want to see the right expertise and experience on the board.

3. Your technology and tech governance isn’t fit for purpose

You may need new technology that you hadn’t originally planned. And you will probably need better governance over your technology than you imagined would be necessary. Not just data protection and cyber security but wider governance over tech resourcing, development and release processes, production oversight and data control. New FCA applications sometimes neglect this area.

4. Your business is effectively managed from outside the UK

The ‘mind and management’ of your business (called ‘mind of management’ by some) needs to be in the UK. Your business has to be located and effectively managed here. There are some very specific requirements, e.g. around board meetings taking place in the UK, and board directors and certain officials being UK residents. But basically you have to demonstrate that your business is substantively located in the UK.  This is not always well-understood by business owner based overseas.

5. You haven’t got the right resources in place to start operating

Aside from board membership, technology and tech governance, you also need to make sure you have got your staff and control processes established ready to start operating on day one. You need to be ready, willing and organised. Some people don’t quite believe they will get authorised, so don’t get themselves prepared to begin operations almost instantly. If you aren’t, the approval won’t happen.

6. You don’t appreciate the regulatory capital needs of your business

Finally – a technical topic but that is vital to your application – you need to have a good appreciation of how much regulatory capital you will need for your business; then make arrangements to actually get it paid in before you start. There are different capital rules for different types of business. You need to understand which one applies to you and the financial implications of that.

Taking specialist advice on capital and the other topics mentioned in this note could save you a lot of cost, inconvenience and heartache later.

Contact us for a free initial consultation

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Ben Mason

Ben was Chief Executive Officer of Compliancy Services for more than 10 years ahead of its transition into Cosegic.

Contact Ben

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